Your project manager presents to you two mutually exclusive projects, A and B. They have the same initial investment and the WACCC is 10%. The cash flows are below. 

a. Calculate the IRR for each project.
b. Your intern says that since they have the same investment and the same IRR, you should be indifferent between them. He says "Why should I care which way I earn 23% on an investment of $1,000? Either way, I invest the same amount and earn the same return, right?" Explain to your intern why this isn't correct. Calculate the NPV and MIRR for each project to help you explain. Use the WACC for the financing rate and reinvestment rate in the MIRR calculation.

Transcribed Image Text:

Year 0 1 2 3 4 5 Project A -$1,000 1,205 10 10 10 10 Project B -$1,000 10 10 10 10 2,741